Judge narrows Alaska's case against BP for North Slope oil spills

A state judge has made a key ruling that could spare BP paying hundreds of millions to the state due to suspended oil production in the aftermath of the company's major 2006 spills on the North Slope.

The state filed a civil lawsuit against BP asserting damages exceeding $1 billion for alleged lost state taxes and royalties and for negligence in maintaining pipelines at aging oil fields the company runs.

BP has already paid a smaller penalty for the spills in federal court -- $ 20 million -- for violating federal pollution laws. The company remains under federal probation in that case.

The March 2006 spill of roughly 212,000 gallons of crude was the largest-ever on the North Slope. The oil leaked slowly over five days from an almond-sized hole in a transit line before a BP worker noticed it. The leak resulted from severe corrosion in the line, which hadn't been maintained properly due to company negligence, state and federal attorneys said.

BP temporarily shut down part of the oil production at the big Prudhoe Bay field in August 2006 after a second spill from a different corroded pipeline. In its civil lawsuit filed last year, the state alleged BP owed it millions of dollars in taxes and royalties for the 35 million barrels that were not produced during the emergency shutdown.

The state court case is headed to trial in March 2012. So far, BP is saying that it owes the state only $1.7 million of the $1 billion the state sued for. BP agrees that it owes the $1.7 million due to penalties laid out in the state oil-spill laws.

Last Friday's ruling by state Superior Court Judge Peter Michalski struck down the state's demand for tax revenue from oil not produced during the partial Prudhoe Bay shutdown.